Bank of Korea cuts key rate to new low in emergency move

Takes it below 1% for first time in rare intermeeting review

SEOUL: The Bank of Korea (BOK) yesterday took the emergency step of cutting the benchmark interest rate by 50 basis points in a rare intermeeting rate review, taking the policy rate below 1% for the first time in history to limit the fallout from the coronavirus.

The BOK has not made a cut through an emergency policy meeting since October 2008 when Asia’s fourth largest economy was reeling from the global financial crisis, and the base rate , now at 0.75%, is the lowest since the bank adopted the current policy system in 1999.

The bank also lowered borrowing costs for the bank’s cheap loan programmes designed to ensure smaller companies can easily and cheaply access credit.

“The monetary policy board assessed that the extent of accommodative monetary policy needed to be further eased to reduce financial market volatilities and curtail impact on growth, inflation,“the BOK said in a statement after the rate decision.

The move to cut the seven-day repurchase rate comes after the Federal Reserve slashed interest rates to near zero on Sunday in another emergency move to provide a potential fillip to the global economy.

After the Fed’s surprise move, central banks of New Zealand and Japan followed suit and bolstered monetary easing as global central banks dive deep to address the potential economic fallout from the coronavirus pandemic.

Onshore financial markets were closed when BOK’s rate decision was announced.

The central bank cut rates in July and October last year

Meanwhile, Hong Kong's central bank cut rates and the level of capital buffers it requires financial institutions to hold to 1% from 2% of their risk-weighted assets.

The authority said it could cut the buffer requirement to zero if needed.

Earlier, the Hong Kong Monetary Authority cut its base rate charged through the overnight discount window to 0.86%. Hong Kong’s monetary policy moves in lock-step with the US.’ – Reuters